Broker Lockton Advises Insurance Buyers to Expect Firming of Prices

Insurance buyers can expect upward pricing pressure in the coming months, according to global insurance broker Lockton.

According to Lockton brokers writing in a new marketplace overview, insurers saw a “perfect storm” of negative developments in 2008, including a deterioration in underwriting performance, an evaporation of investment income and a decline in profitability.

Diminished capacity and financial pressures may give underwriters greater incentive to maintain pricing discipline than during the last several years, according to Lockton brokers.

However, since insurance capacity remains fairly high compared to historic levels, it is unlikely that rates will change rapidly. Certain risks have already seen increases, and rate decreases may be beginning to flatten across the board.

Michael Schwander and Ken Capone of Lockton Denver observe that in the area of financial and executive risks, the upward pressure on pricing is already a reality.

“The five-year span of reduced premiums, broad terms, and increased capacity in the directors and officers (D&O) market has ended abruptly, especially for financial institutions and venture-backed start-ups,” they write.

There will likely continue to be significant variation by line, industry, and according to loss history, the Lockton team advises.

For example, in primary casualty lines, Lockton is seeing average rate changes from 10 percent decreases to increases of 10 percent for clients with regular loss histories.

Mark Moreland of Lockton’s Risk Management team notes that most casualty buyers have still seen favorable renewals, but that may soon change. “Over the next quarter, our view points toward a continuing favorable market with the realization that we are at — or very near — the bottom of the pricing cycle,” he writes.

In property lines, Lockton has seen a range from slight decreases to significant double-digit increases for catastrophe exposed property.
Jim Rubel of Lockton’s Global Property Practice says property insurers are feeling the burden of higher losses and reduced capital. “The result is that the buyer’s market of the past few years is undergoing a dramatic change, with insurers hoarding capital, curtailing capacity, and raising prices on most catastrophe and loss-prone property programs,” he observes.